The Future Of Fixed Term Work

01 April 2002

Andrew Masters previews the impact that new laws on fixed term employment contracts will have for your business.

The Government will implement on 1 October 2002 ground breaking legislation that gives new rights to employees engaged on fixed term contracts. The draft Fixed Term (Prevention of Less Favourable Treatment) Regulations 2002 have been published and the final version will implement the European Union’s Directive on Fixed Term Work.

In recent years, fixed term contracts have become popular with both employers and employees and may become common practice in future recruitment and human resource planning. Although more common in the public sector, they are also widely used in the private sector. Fixed term contracts are frequently used in manufacturing, construction, finance, insurance and in the leisure industry. Examples include an employment contract for a research project of a specific duration, a contract for an employee to complete a specific task (for example, setting up a new IT system) or a contract ending when the permanent job holder returns from maternity leave or some other absence.

The new Regulations will broadly follow the rights given to part timers following the implementation of the Part Time Workers (Prevention of Less Favourable Treatment) Regulations 2000. They will cover two main areas:

• Prevention of discrimination against fixed term employees when compared to similar permanent employees in respect of their terms and conditions of employment.
• Prevention of abuse arising from the use of successive fixed term contracts.

Discrimination Against Fixed Term Employees

A recent TUC survey of unionised workplaces found that 47% paid fixed term workers lower rates than permanent workers and 70% did not offer the same access to occupational pension schemes.

When implemented, the Regulations will prevent a fixed term employee from being treated less favourably by their employer than a permanent employee engaged in the 'same or broadly similar work' (known as a comparator), having regard, where relevant, to whether they have a similar level of qualification, skill and experience. The comparator must also work or be based at the same establishment as the fixed term employee. Where there is no comparable employee working or based at the same establishment who satisfies these requirements, the fixed term employee may compare their work with an employee who works or is based at a different establishment and satisfies those requirements.

The Regulations will cover terms and conditions of employment, for example, pay, pensions, annual leave and the provision of employee benefits, such as private health insurance. They will also provide a right not to be subjected to a detriment, for example, when selecting employees for redundancy or when providing access to training.

The Government had previously considered that pay and pensions would not be covered. However, following a period of consultation, it was clear that if these were excluded the new laws would not have their intended effect. Following the Government's decision to include provision for pay and pensions in the new Employment Act 2002, it now seems that fixed term employees will enjoy the same rights as comparable permanent employees from October.

Businesses should note that it will, however, be possible to justify less favourable treatment in respect of a particular term of a fixed term contract provided that when taken as a whole, the contract is not less favourable than that of a comparable permanent employee. The crucial point is to consider the overall contract rather than the individual terms. If overall the terms and conditions are broadly comparable, it is unlikely to fall foul of the Regulations. There will not therefore be a requirement for a like-for-like pro rata entitlement in respect of each particular term of the contract.

Successive Fixed Term Contracts

The Government has been reviewing for some time the practice by some employers of employing staff on successive fixed term contracts in an attempt to avoid the accrual of individual employment rights.

The Regulations include a mechanism for restricting the use of successive fixed term contracts. When the Regulations are implemented, successive fixed term contracts will not be allowed to last longer than a combined period of four years. After four years, the employee will become a 'permanent' employee with the contract converting to a 'permanent' contract.

Businesses should note, however, that the four year period will only start running from 1 July 2002 and any fixed term time before this date does not count as part of the four years. The four year limit can also be varied by a collective or workforce agreement that specifies a maximum duration of successive contracts and a maximum number of contracts and/or objective reasons which justify renewals of fixed term contracts. An example might be where there is a relatively short period of time left before a major project is completed.

Other Measures

The redundancy waiver in fixed term contracts of two or more years will be removed from contracts or extensions to contracts that are entered into from 1 October 2002. Waiver clauses agreed before 1 October 2002, however, will remain in force. The unfair dismissal waiver was removed in October 1999. This means that it will no longer be possible for a fixed term employee to waive their statutory right in a contract to a redundancy payment or waive rights they might have to a claim for unfair dismissal.

Fixed term employees will also have the right to be informed of available vacancies at their workplace (although posting on a public notice board or company intranet should suffice in most cases).

Other measures include equal rights to receive payments on the grounds of medical suspension and statutory sick pay.

'Employees' not 'Workers'

The groups covered by the Regulations will be limited to 'employees'. This means that 'workers' and the 'self-employed' will not be covered. Not all employees, however, will receive protection from the Regulations. The Government does not intend the Regulations to apply to employees working under contracts of apprenticeship, some people employed on Government supported training or re-training programmes, agency workers or the armed forces.

Remedies

The remedies available to fixed term employees will again broadly follow those available to part timers.

A fixed term employee has the right to receive a written statement of reasons from the employer where the employee believes that less favourable treatment has occurred. An employer must respond to the employee within 21 days. An employee also has the right to a statement if the contract remains fixed beyond the four-year period.

An employee can apply to an employment tribunal if they are dismissed or subjected to a detriment, having exercised their rights under the Regulations. A dismissal for seeking to enforce these rights will be automatically unfair irrespective of the employee's length of service. An employee does not therefore need to be employed for a continuous period of one year or more, which is the normal qualifying service required to bring a claim for unfair dismissal.

The Future

Successive Government's have been committed to improving flexibility within the UK labour market. The new Regulations, which will be finalised in the next few weeks, attempt to promote fairness at work for fixed term employees while preserving flexibility for employers.

For businesses that employ fixed term staff on long term contracts, they must also consider whether they need to negotiate a collective or workforce agreement if they wish to avoid fixed term contracts converting to permanent contracts. This will again require careful planning.

For more information please contact Andrew Masters, Partner & Head of Employment.
 

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